47 Change with­out end Tough new rules on tax havens are forc­ing the coun­try’s off­shore banks to evolve

Tough new in­ter­na­tional rules on tax havens are forc­ing Mau­ri­tius’s off­shore banks to evolve. Like other parts of the econ­omy, the fi­nan­cial sec­tor is look­ing to Africa for growth as it also moves away from plain vanilla ser­vices to pro­vide more so­phis­tic

The Africa Report - - CONTENTS - By Ni­cholas Nor­brook in Port-louis

For a coun­try that prides it­self on be­ing plugged into the global flows of dis­em­bod­ied cap­i­tal, many parts of the Mau­ri­tius econ­omy feel re­as­sur­ingly solid. A sleek, scar­let-or­ange Span­ish tuna boat sits in the 130-me­tre dry dock of the Cen­tre Naval de l’océan In­dien (CNOI), a ship­yard spe­cialised in ser­vic­ing fish­ing fleets ply­ing the In­dian Ocean, as well as the French navy. The yard has thrown its elf into ship-build­ing, too. A prawn-hunt­ing ves­sel sits up on blocks. Sparks are fly­ing from busy welders. “It’s the first of a se­ries

of eight such ves­sels – and, if all goes well, two dozen, for an Aus­tralian client,” says Arnaud Lagesse, chief ex­ec­u­tive of the is­land’s largest con­glom­er­ate, IBL Group, the ma­jor­ity share­holder in CNOI. It is just as well that eco­nomic diver­si­fi­ca­tion has real sub­stance in Mau­ri­tius – a coun­try whose top three ex­ports are tuna, cloth­ing and sugar – be­cause the head­winds for its off­shore fi­nan­cial sec­tor are mount­ing. Af­ter the 2008/2009 fi­nan­cial crash, sev­eral decades of multi­na­tional com­pa­nies us­ing hubs like Mau­ri­tius to in­ge­niously struc­ture their tax strate­gies, and years of stag­nant wages in the West, there has been a pop­ulist back­lash. Global cap­i­tal­ism, it ap­pears, is not float­ing all boats. The re­sults can be seen in the Trumps and the Brex­its.


But the push­back against opaque in­ter­na­tional fi­nan­cial cen­tres has also come from new rules driven by the club of rich coun­tries known as the Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and Devel­op­ment (OECD). And also, in the case of Mau­ri­tius, in the amend­ment of a dou­ble tax­a­tion avoid­ance agree­ment signed with In­dia in 1982. While the In­dian me­dia of­ten crit­i­cises that deal for fa­cil­i­tat­ing tax dodg­ing, the chair­man of the State Bank of Mau­ri­tius puts up a ro­bust de­fence: “We are pay­ing the price of our suc­cess,” says Kee Chong Li Kwong Wing (see in­ter­view page 58). “More than two-thirds of the for­eign in­vest­ment into In­dia was chan­nelled from Mau­ri­tius. If to­day In­dia has been able to achieve devel­op­ment, Mau­ri­tius had a big role to play.” What­ever the case, that money and the as­so­ci­ated fees that Mau­ri­tius de­rives from it are dry­ing up, es­pe­cially from United States in­vestors who had pre­vi­ously used Mau­ri­tius to struc­ture in­vest­ment into In­dia. In 2012, Mau­ri­tius rep­re­sented al­most a third of all for­eign port­fo­lio flows into In­dia. By 2016, it was not even a fifth. To com­ply with new OECD di­rec­tives, Mau­ri­tius has to demon­strate that it has a fi­nan­cial sec­tor of ‘eco­nomic sub­stance’ – that is to say, not a tax haven lit­tered with anony­mous boiler-plate com­pa­nies that have shopped around to get an ad­van­ta­geous tax rate. The fi­nan­cial sys­tem must in­stead pro­vide real ser­vices. Omi­nously, the list of things that the OECD does not con­sider ‘sub­stan­tial’ in­cludes things like pro­vid­ing trea­sury ser­vices and ser­vic­ing the head­quar­ters of a group of com­pa­nies. That, says Mau­ri­tius’s min­is­ter for fi­nan­cial ser­vices, Dhar­men­dar Se­sungkur, is un­der dis­cus­sion with the OECD “be­cause the rules which have been im­posed are quite strin­gent” (see in­ter­view page 50). To man­age the tran­si­tion to the OECD rules, the gov­ern­ment is draw­ing up a new 10-year blue­print for the global busi­ness sec­tor, a newish term for off­shore fi­nance. Here, the gov­ern­ment of Mau­ri­tius is do­ing what it does best – lever­ag­ing pri­vate-sec­tor ex­per­tise. “I’m very happy to see that there are work streams by stake­holder,” says Huns Bil­too of KPMG Mau­ri­tius, “so then you’ve cov­ered the whole [fi­nan­cial] ecosys­tem.” Can the lo­cal play­ers change their game soon enough? The life­cy­cle of In­dia-fo­cused funds sug­gests that a large chunk of them will cash out their in­vest­ments around 2021, ac­cord­ing to Bil­too. Mau­ri­tius by then will no longer be quite so ap­peal­ing on the tax front, so in­vestors would need to have other rea­sons to stay. The Mau­ri­tian econ­omy has evolved be­fore. It is a stal­wart of the ‘value-chain’, eco­nomic jar­gon that means cre­at­ing ever-more-valu­able prod­ucts, anal­o­gous to sell­ing re­fined pe­tro­leum in­stead

The pro-busi­ness state is help­ing Mau­ri­tian com­pa­nies ven­ture into Africa

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